RBS 2011 Annual Report Download - page 245

RBS Group 2011 243
Regulatory relationship management
The Regulatory Relations Forum, chaired by Group Regulatory Affairs,
meets fortnightly and now has global coverage with representatives from
all divisions and regions. It facilitates the sharing of key regulatory
engagements and the lessons learned from them.
Quarterly reporting to the Group Audit Committee captures all material
regulatory reviews and investigations and upstream regulatory
developments worldwide, as well as tracking the status and trends in key
regulatory relationships.
Other key regulatory policies, specifically ‘Group Relationships with
Regulators’ and ‘Political, Legislative and Regulatory Environment’, were
reviewed and re-launched. Each incorporates a new risk appetite
statement, a benchmarking exercise against the Group's peer banks and,
for the latter, an end-to-end review and mapping of the upstream risk
management process.
Recovery and resolution planning
The Group considers effective resolution regimes, coordination between
regulators, and recovery and resolution planning, to be important
components of an extensive reform agenda to improve safety and
stability within the banking industry. Accordingly, the Group recognises
the potential value of Recovery and Resolution Plans (RRPs) as
mechanisms for preparing banks to deal with: severe stress events
(through a range of developed recovery options in the Recovery Plan);
and ensuring authorities will have all the critical information they need to
identify and carry out appropriate resolutions in the event of failure (the
Resolution Plan).
To ensure effective management of financial stability across jurisdictions,
and to avoid duplication and inefficiency for cross-border banks, it is
important that the approach, content and role of RRPs are globally
consistent across jurisdictions.
The Group intends to sustain its strong momentum on the development
of RRPs. As well as working with the UK authorities, the Group will
continue to work with global policy developers in order to contribute to the
development of RRPs in other jurisdictions, in particular within the EU
and the US. The timeframes for the development of RRPs in these
regions are considerably longer than in the UK, and it will be important to
ensure that a consistent policy approach and format are adopted if the
RRPs of UK-based global banks are to meet local requirements, and do
not have to be redrawn or duplicated.
Global compliance risk and compliance policies
Within the Group Policy Framework, compliance risk and compliance
policies define minimum standards to which all businesses must adhere.
The policies are primarily driven by the rules and regulations set by the
FSA, the Group’s lead regulator. However, these global minimum
standards are supplemented, where appropriate, by divisional policies to
meet local product or market requirements.
In compliance risk management, the term ‘conduct risk’ is used to refer to
the risk of breaches of: (a) regulation or law; or (b) regulatory expectation.
This is distinguished from ‘prudential risk’, i.e. compliance risks related to
capital management, liquidity, credit risk, operational risk and market risk.
Asignificantly enhanced compliance/conduct policy structure was
outlined during 2011. It is aligned to a new Conduct Risk Appetite
statement as well as the expected direction of the new Financial Conduct
Authority, which will be one of the successors of the FSA. As a result, in
future, it will be possible to assess the pan-Group risk profile for conduct
risk against its risk appetite. In addition, it will be possible to provide more
detailed policy direction to divisions on key areas of conduct risk.
Assurance and monitoring
Assurance and monitoring activities are essential to ensure that the
Group can demonstrate compliance with existing rules and regulations.
During 2011, a ‘heatmap’ of the key inherent conduct risks across all the
Group’s global businesses, reflecting both internal and external change
and divisional priorities, was developed. This, in turn, drove a
comprehensive programme of assurance reviews across the Group.
These reviews introduced a global, end-to-end thematic approach,
looking at customer outcomes as well as process adherence. In addition
to immediate issues, for which action plans were developed, the reviews
identified a number of wider themes that required a more strategic
approach.
Training and awareness
Maintaining compliance with existing rules and regulations requires
continued investment in professional training, as well as maintaining risk
awareness. During 2011, the Group focused on strengthening the
capabilities of its compliance risk functions at both Group and divisional
level. The Group facilitates extensive compliance training through
computer-based Group Policy Learning modules, with each one designed
to promote the relevant regulatory Group Policy Standard.
To support the professional development of the Group’s compliance
teams, it also has a comprehensive and progressive training programme
that is deployed globally. All of the Group’s regulatory staff are actively
engaged in compliance e-learning, which incorporates a mandatory
‘essentials’ course, and the RBS Risk Academy, through which all staff
are required to complete foundation courses in other risk disciplines, such
as operational risk, market risk and retail credit risk. Formal training is
supplemented by more informal regulatory familiarisation; this is designed
to share knowledge, and support both personal development and
technical training across the wider risk community.